The Importance of ERP System Integration
Within an enterprise, there are many different systems and processes that help manage the many facets of an organization.
ERP, or enterprise resource planning, is a term that describes the back-end functions that drive a business, but it’s ERP system integration with the rest of your IT stack that’s critical to achieving enhanced organizational outcomes.
ERP software is designed to simplify and centralize specific business processes, such as purchasing, inventory management, and customer relationship management (CRM), and it can be paired with other business modules to facilitate finance and human capital management processes, for instance.
Essentially, an ERP enables companies to manage the critical parts of its business from a single application.
Having a general understanding of an ERP’s purpose will help businesses understand the different ERP deployments and help better design ERP system integration.
Whether you should use an on-premise ERP or a cloud ERP depends on your IT resources and specific business needs, but there are benefits and challenges to using both.
A traditional on-premise ERP is installed locally within a company’s environment, rather than hosted by a third-party provider in the cloud.
Much has been made of the debate whether an organization should migrate some or all of its business processes into the cloud, and for some industries, the amount of security and control that you get in your own environment is too valuable to risk.
On-Premise ERP Benefits
1. Easier to modify - On-premise ERPs allow enterprises to make changes and customize their application to meet their specific needs.
2. More control - For those companies in niche or highly regulated industries, on-premise ERPs give a much greater level of control to maintain and manage data.
3. More security - Much like control, an on-premise ERP secures data to a level that you might not be able to obtain in certain cloud environments.
On-Premise ERP Challenges
1. Implementation time - Because on-premise ERPs allow for more customization, it also means delays in implementation time, which can result in some potential headaches when a vendor updates or modifies the software.
2. Upfront investment - An on-premise ERP often requires larger hardware and other capital investment upfront, whereas a cloud application often can be managed over as an operational expense.
3. Ongoing maintenance - Because an enterprise is responsible for maintaining and managing its own environment, when the technology doesn’t work like it’s supposed to, it’s the company’s responsibility to fix and pay for it long term.
A cloud ERP is hosted on a third-party cloud computing platform, instead of behind a company’s firewall or within its own data center. Much like an on-premise ERP, there are benefits and challenges to choosing this model that will vary based on your enterprise’s needs.
Cloud ERP Benefits
1. Cost - The most alluring factor to choose a cloud ERP revolves around just how much money an enterprise can save. Costs are predictable over time, and enterprises only pay for what they use, with a modest upfront investment and no additional hardware investments.
2. Accessibility - The proliferation of cloud computing also has enabled mobile accessibility, allowing enterprises to use their applications from anywhere and on most devices.
3. Stability - A cloud ERP will have greater stability through a third-party vendor because of the continuous updates the vendor does to improve the software and the resolution of issues that arise.
Cloud ERP Challenges
1. Lack of control - IT admins will lose a certain amount of control with a cloud ERP over customization and integration because the control usually is in the hands of the third-party provider.
2. Security (or lack thereof) - As the most alluring factor to choose a cloud ERP is the cost savings, the biggest drawbacks centers on the security of the cloud itself. Your business loses the ability to proactively protect critical information stored in an ERP system that resides on a third-party provider’s cloud.
3. Compliance - Enterprises, especially those in highly regulated industries, must ensure that they remain data-complaint at all times. When selecting a cloud ERP, data residency requirements and standards need to be met, which can be difficult since data can live in multiple cloud data centers across many different regions.
While on-premise ERP and cloud ERP are the two most common forms of enterprise resource planning, there is a new strategy that combines both to create a sort of hybrid model, called postmodern ERP.
Gartner defines postmodern ERP as “a technology strategy that automates and links administrative and operational business capabilities … with the appropriate levels of integration that balance the benefits of vendor-delivered integration against business flexibility and agility.”
This definition takes into account two types of ERP strategies: administrative ERP and operational ERP.
Administrative ERP Strategy
Administrative ERP refers to aspects of an ERP including financial management, human capital management, and indirect procurement. Many industries only require administrative ERP capabilities, such as manufacturing or distributors, so their ERP strategy is completely focused on administrative functions.
These industries might then supplement the ERP’s capabilities through industry-specific functions.
Operational ERP Strategy
Organizations utilize an operational ERP strategy when they must tackle various workflow functions, such as order management, supply chain, and manufacturing.
For companies that need to pair operations with the maintenance of assets in their ERP, integration between administrative and operational ERPs helps organizations streamline processing and enable visibility within each ERP.
A postmodern ERP strategy is designed to give businesses the flexibility to use the best applications for their specific needs, while ensuring these components adequately integrate and interact with each other to meet the larger business goal.
An ERP system automates business processes to make the organization more efficient and provides better visibility into those processes. But to reap the full complement of ERP benefits, businesses must integrate their ERP system with the rest of their systems and applications.
While integration is a critical component of any ERP deployment and strategy, elegant ERP system integration strategies still elude many organizations.
Request a demo today and discover how these out-of-the-box adapters expedite the ERP onboarding process and deliver robust integration capabilities designed for you to better leverage your critical ERP applications.